NTH :: You can redeem only Rs 2 lakh from MF scheme if your fund house faces systemic crisis

By ET Bureau | 1 Jun, 2016, 10.40AM IST | Economic Times

MUMBAI: Investors will be able to redeem only up to Rs 2 lakh from a mutual fund scheme if the fund house faces systemic crisis, and the market regulator on Tuesday said that fund houses can impose restrictions on redemptions only if there is a systemic crisis or an event that severely constricts market liquidity.

The Securities and Exchange Board of India’s ( Sebi ) move comes after the redemption crisis faced by JP Morgan in two of its schemes involving Amtek Auto in September 2015.

The regulator’s latest note, that is effective immediately, stipulates that an AMC can impose restriction only in case of broad liquidity issues that affect “almost all securities reather than any issuer specific security,” in the event of market failures or exchange closures or under exceptional operational problems.

Asset management companies can impose restrictions only for a maximum 10 working days with prior approval from its board and trustees.

If the redemption requests are above Rs 2 lakh then fund houses would have to redeem the first Rs 2 lakh without any restrictions and only the remaining part would be subject to the restriction.

The new rules would be with immediate effect for all new schemes launched from now onwards while it would be applicable for existing ones from July 1.